'Without Prejudice' Statements can be Admissible

Oceanbulk Shipping & Trading SA v. TMT Asia Limited & Others [2009] EWHC 1946 (Comm)

Oceanbulk Shipping & Trading SA v. TMT Asia Limited [2010] EWCA Civ 79

Oceanbulk Shipping & Trading SA (Respondents) –v- TMT Asia Limited and others (Appellants) [2010] UKSC 44

Ince & Co has won an important case in the Supreme Court regarding the protection afforded by 'without prejudice' discussions.

The Supreme Court unanimously held that, when construing a settlement agreement between two parties, evidence of facts within their common knowledge is admissible where those facts have a bearing on the meaning that should be given to the words of that agreement. This is so even where the knowledge of those facts is conveyed by one party to the other in the course of negotiations that are 'without prejudice'.

The 'Without Prejudice' General Rule

The 'without prejudice' rule will generally prevent statements made in a genuine attempt to settle an existing dispute, whether made in writing or orally, from being put before the court as evidence of admissions against the interest of the party which made them. The justification for excluding 'without prejudice' negotiations from evidence is that (i) parties should be encouraged to settle their disputes without recourse to litigation, and (ii) they will be so encouraged if they know that any admissions they make in the course of confidential negotiations will not be used against them.

Brief Facts

The Claimant, Oceanbulk, and the Defendants, TMT, were parties to a number of forward freight agreements (FFAs) with settlement dates in 2008. Under these FFA contracts, parties essentially speculate against movements in the freight market and the party that is the 'seller' under a FFA makes a profit if the market drops below the contract rate and the 'buyer' makes a profit if the market rises.

In early summer 2008, the exceptionally high freight rates were such that at the end of May 2008 TMT was said to owe Oceanbulk approximately US$40.5 million. Thereafter, Oceanbulk and TMT entered into a settlement agreement pursuant to which TMT's obligation to pay the May settlement sums and any subsequent 2008 settlement sums was postponed on terms. A dispute subsequently arose as to the proper construction of one of the clauses of the settlement agreement. According to Oceanbulk the proper construction of the relevant clause meant that it was owed a substantial amount of money by TMT. However, according to TMT, the proper...